Questions and Answers on the European
Strategic Energy Technology Plan (SET-Plan)

Today the European Commission has adopted a
proposal for a European Strategic Energy Technology Plan (see IP/07/1750).
Energy technology will be a key element of Europe's plans to reduce its
greenhouse gas emissions and move towards a low-carbon future. But there are
structural weaknesses in the current energy research system (see MEMO/07/469
– Why Europe needs a Strategic Energy Plan). The SET-plan (see MEMO/07/493
for details) should help the European Union position itself to develop the
technologies it needs to meet its political objectives and at the same time
ensure its companies can benefit from the opportunities of a new approach to
energy.

Q: What are the main actions proposed in the SET Plan?

A: The SET plan proposes a number of concrete actions to develop a more
coherent energy research landscape in Europe. These include:

Creating European Industrial Initiatives, which will strengthen
energy research and innovation by bringing together appropriate resources and
actors in a particular industrial sector. They will have measurable objectives
in terms of cost reduction or improved performance, and will bring together the
efforts of the EU-level, Member States and industry. They will be focused on
technologies for which the barriers, scale of investment and risk can best be
tackled collectively. Areas for this approach that arose out of the consultation
process are: Wind; solar; bio-energy; CO2 capture, transport and
storage; electricity grids; and nuclear fission.

Creating a European Energy Research Alliance, to enable greater
co-operation across Europe of the research work going on in universities,
research institutes and specialised centres. The Alliance will be able to cover
the multitude of scientific disciplines that have an impact on the development
of energy technologies (physics, chemistry, materials science, engineering and
so on). Area for focus could include basic energy science, enabling &
breakthrough technologies and advanced energy efficiency.

Planning the transition of European energy infrastructure networks and
systems: a sustainable, interconnected European energy system will require
massive change to infrastructures and systems. Not only will this process
require significant investment, and take time, perhaps decades, it will also
affect many different sectors. Therefore a clear view is needed of how this is
done, to make the most of an integrated low-carbon energy system across Europe.
The Commission will develop its ideas in this area in 2008.

European Energy Technology System: one of the weaknesses of the current
system is the lack of reliable data on energy technologies. The Commission will
establish and run a regularly up-dated information system, open to all,
which will "map" technologies – providing information on the latest
situation, barriers to technological uptake and the potential of existing
technologies. It will also provide up to date information on financial and human
resources. Such a system will allow rigorous monitoring of the progress in the
development of European energy technologies and provide useful support to
policy-making.

Creating a European Community Steering Group on Strategic Energy
Technologies, which will allow Member States and the Commission to plan joint
actions and coordinate policies and programmes. A European Energy Technology
Summit in 2009 will provide an opportunity to review progress and make
achievements known within the wider energy technology
sector.

Q: How much money does Europe invest in the development
of energy technologies?

A: At this stage it is difficult to quantify the exact amount of investment
in energy technologies. The EU's 7th Framework Programme for research
(2007-2013) has an average annual budget of about €886 million devoted
directly to energy research. Member States' budgets vary:

Energy public spending relative to GDP 2005[ Figures and graphics
available in PDF and WORD PROCESSED ]

For most countries, 2005 figures were used. However, there are a number of
countries for which another year had to be used due to data shortcomings in more
recent years: for Austria, 2004 figures are applied. In the case of Finland and
the Netherlands, figures for 2003 were used. Belgium, Czech Republic, Luxembourg
and Greece are excluded due to data gaps for more recent years.

Source: IAE database; France: Ministry of Industry

A more accurate follow-up of investment in energy technologies will be
instigated in the information and knowledge management system proposed in the
SET-Plan.

Q: Will more money go to energy research from the EU budget?

A: Firstly we need to use better available resources. The implementation of
the SET-Plan will help overcome the fragmentation of the European innovation
base, leading to a better overall balance between cooperation and competition.
Encouraging more focus and coordination between different funding schemes and
sources will help to optimise investment, build capacity and ensure a continuity
of funding for technologies in different phases of development.

However, the challenge of mobilising additional financial resources has to be
addressed.

The resources needed to accelerate the development of new energy technologies
are difficult to estimate, as they depend on the evolution of the market price
of current resources and the results of on-going and future research. But, they
are certainly larger than the current level of investment.

Recent studies (e.g. the Stern Report, the Intergovernmental Panel on Climate
Change reports and the International Energy Agency reports) confirm that
increased energy research investment, to at least double the current levels,
will deliver substantial benefits. Equally, the Stern Report recommends an
increase in deployment incentives by two to five times, to realise learning
benefits (leading to cost reductions of new technologies).

The Commission intends to present a Communication on financing low carbon
technologies at the end of 2008. The Communication will address resource
needs and sources, examining all potential avenues to leverage private
investment, including private equity and venture capital, enhance coordination
between funding sources and raise additional funds. In particular, it will
examine the opportunity of creating a new European mechanism/fund for the
industrial-scale demonstration and market replication of advanced low carbon
technologies as well as the introduction of tax reduction mechanism on low
carbon energy innovation.

Q: What is the difference between European Industrial Initiatives and
FP7's Joint Technology Initiatives?

A: The European Industrial Initiatives will be implemented in different ways,
depending on the nature and needs of the sector and the technologies. For
technologies with a sufficient industrial base across Europe they may take the
form of public-private partnerships, while for other technologies which are
prioritised by a few countries, they may take the form of joint programming by
coalitions of those interested Member States. Where appropriate, a combination
of 'technology push' and 'market pull' instruments may be used.

The Joint Technology Initiatives are one form that could be used to implement
a European Industrial Initiative. The Fuel Cell and Hydrogen JTI recently
proposed by the Commission provides an excellent example in this respect.

Q: What criteria have been used to select the industrial initiatives
suggested in the text?

A: Accelerating a process inevitably leads to making choices and to focusing
efforts. However, Europe has a strong scientific and industrial basis that
allows us to pursue the broad portfolio of technologies needed.

Different technologies are in different stages of development and, therefore,
require different support schemes. In assessing the need for EU level
initiatives, the most fundamental criteria applied are:

the EU added value and additionality;

the willingness of actors to join forces;

the potential market penetration of the technology in different time
horizons;

the potential contribution to CO2 reduction, security of energy
supply, and competitiveness.

This is explained and further developed
in the Impact Assessment as well as in the Technology Map developed in support
of the SET-Plan.

Q: Why doesn't energy efficiency have a higher profile in the
SET-plan?

A: The SET-Plan is one piece of a comprehensive mosaic of actions proposed by
the Commission in the Energy Policy for Europe.

To tackle our energy and climate change challenges the Commission advocates
first and foremost, for a step change in efficiency in energy conversion, supply
and, of course, end-use. We need to use public policy and market-based
instruments[1] to raise minimum
standards and encourage new markets, as well as to fully harness the potential
for information and communication technologies, demand management and
organisational innovation.

Returns from energy efficiency improvements and switching to cheaper fuels
normally payback by themselves, but they usually have a high upfront investment
which can be dissuasive, leading to market failures.

Several policies and measures are already in place to drive this process,
notably the Energy Efficiency Action Plan and the Freight Logistics Action Plan,
and the directives on Eco-design and on Energy Labelling of Energy Using
Products, on Energy Services and on Building Performance. Other measures are in
the pipeline, for example on CO2 emissions from cars, the Action Plan
on Urban Mobility, a new phase of the Emissions Trading Scheme, and the
initiatives on lead markets, sustainable production and consumption and
sustainable industrial policy

Through these policies, Member States will put in motion a broad range of
market pull instruments in accordance with their preferences and
constraints.

The subject of the SET-Plan is low carbon technology for which there is no
market appetite (neither on the supply nor the demand side) due to the commodity
nature of energy. They are needed to reach the CO2 reduction targets
in the short term and, even more so in the longer term.

When assessing the need for European level support for technology innovation
the supply side action appears prominently. This is because demand side action
is more appropriate at national, regional or even local level (e.g. building
insulation materials), as it is better adapted to their specific conditions.

But by no means should it be interpreted that the Commission does not attach
importance to demand side action and energy efficiency. It is just the
opposite.

Q: High oil prices and the Emission Trading Schemes will be enough to
stimulate innovation in the market, so why a SET-Plan as well?

A: Investment in the development of energy technologies in general has
followed closely the same trends as oil prices over the last decades. Currently,
higher oil prices are starting to have an effect on public investment. We do not
have information regarding the private side but it is most likely following the
same trend.

However, what is not yet factored in, regarding the level of investment, are
the new targets set by the European Council (e.g. they come a year after the
adoption of FP7), the increased investment in other parts of the world, and the
need to anticipate (precautionary principle) due to the long lead time to market
and the irreversibility of high concentrations of CO2 in the
atmosphere. The new carbon-constrained paradigm means that oil price signals no
longer lead to an efficient level of investment. What worked in a market with no
external constraints will not work in the future.

Q What is the role of basic science in the SET-plan?

A: Basic science will be crucial in generating the breakthroughs needed to
bring new generations of technologies to the market.

We need to create the conditions in which a truly multi-disciplinary approach
can be fostered, including materials, nano-sciences, bio-sciences, ICT and so
on. By bringing researchers from different fields together, we can maximise the
opportunities for exploiting synergies and generating completely new ideas.

The proposed European Energy Research Alliance will play a key role in
implementing a European basic research programme for energy.

[1] COM(2007)140 of
28.3.2007, Green Paper on market based instruments